4.3. Sales Forecasting (HL Only)

  • Sales forecasting
    • Quantitative techniques to estimate future sales using a range of forecasting techniques
    • Forecasting allows for smoother cash-flow management, inventory & production, financing
    • Benefits
      • Provides valuable information for a business about the trend of sales and what to expect in terms of revenue
      • Lets a business use quantitative data (past sales) and qualitative data (impending changes) to assess the future of the company’s sales and success
    • Limitations
      • No one can predict the future
      • Using different methods, businesses will end up with different scenarios and different trends
        • May confuse the business on what strategy to use
  • Methods of forecasting
    • Four part moving average sales trends
      • In order to remove the variations produced by seasons, trade cycles and other variations, and moving average is used to make data smoother
      • Given a set of actual sales, you take the average of four points of data (eg. 4 values of revenue/month) and average them, moving left-right
      • Corresponds with how sales are usually reported which is quarterly
      • More difficult than 3 part moving average (only 3 points are used)
    • Time series analysis
      • Predicts future sales by identifying underlying trend line
        • Seasonal fluctuations
          • Seasonal variations in demand
          • e.g. pre-Christmas season is capitalized in the USA through the Black Friday and Cyber Monday sales
        • Random fluctuations
          • Unpredictable fluctuations in sales
        • Cyclical fluctuations
          • Variations linked to economic cycle of booms and slumps
        • Response
          • Deliberate actions taken to affect sales (e.g. Sales promotion)
    • Extrapolation
      • Plotting historical data and extending the trent to project future sales
      • Simple but not very accurate
    • Delphi technique
      • Using a panel of independent experts
      • Experts go through a sequence of questionnaires, each of which builds on previous ones, lasting throughout several rounds
      • A facilitator provides an anonymous summary of the experts’ forecasts from the previous round as well as the reasons for their judgments
    • Market research
      • Identify trends and external changes that can impact sales and combine with statistical data

 

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